Mexican chain serves high-risk customers

Published 6:30 am, Friday, December 6, 2002

He had borrowed the equilalent of several hundred dollars from a friend to get out of a financial bind, and it was time to pay up.

But even with his part-time carpentry job, the 47-year-old father of four didn't have enough money to pay off his loan.

In addition to the personal loan, Vidal had plenty of bills, including his $16 weekly payment on a note to buy a washing machine and small stereo he had purchased at Elektra, a giant retail chain in Mexico.

As he thought about his problem, Vidal stopped at an Elektra store to make a payment. There he saw an ad for personal loans through the newly opened Banco Azteca.

Because the bank is at the back of an Elektra store, Vidal didn't even realize he had borrowed money from Banco Azteca. He thought Elektra had loaned him $350.

"It took away my worries," said Vidal, who agreed to repay about $14 every week for nine months, for a total of $550.

"Now I have a place where I can go if I need support."

Vidal knows the interest is high but admits he has few other borrowing options. He earns less than $500 a month and lives in the crime-ridden Mexico City suburb of Nezahualcoyotl.

He is a typical customer for Banco Azteca, and in exchange for posing a credit risk, borrowers like Vidal must pay a hefty 50 percent interest rate for personal loans.

Vidal had never received a loan from another bank, he said, because those institutions have too many requirements, such as producing proof of income.

For many in Mexico's informal sector who make a living as taxi drivers, plumbers or street merchants, getting a loan is impossible because they have no check stubs.

"There was not a bank that served this market," said Carlos Septien, general director of Banco Azteca. "There's a large, unattended-to market in Mexico."

Although advertisements for credit cards, car loans and home loans wallpaper cities here, only about 15 percent of the country's population can qualify, Septien said.

"One of the principal causes of poverty in Mexico is the lack of access to credit," said Septien, from his office in southern Mexico City. More than half of Mexico's population is considered impoverished.

He figures the new bank can target 70 percent of Mexico's 100 million people.

With Elektra's 48 years of know-how in loaning to lower-income consumers, the company already has information about 4 million borrowers.

Many of those customers buy Elektra's products, develop film at its stores or receive money transfers from the United States through Western Union.

Vidal was one of them, having borrowed money in the past five years to help buy a tape recorder, stereo, washing machine and furniture. Two weeks ago, he decided to try Banco Azteca's new service of personal loans.

But Stephanie Diaz, 18, is a new customer snagged by Banco Azteca. Diaz decided to open a savings account at Banco Azteca because her employer plans to deposit her paychecks in the bank.

She started the account with only $5. Diaz, who lives with her parents, hopes to save most of her earnings of $20 a day, which she receives from displaying products at a local department store. She needs to save money because she has a 3-month-old son.

"When I need money, I'll have something," Diaz said as a trio of hired singers showed off a karaoke machine on sale at Elektra.

Through Elektra and its partnership with Banca Serfin, customers could start savings accounts for the past five years. The joint venture resulted in $42.4 million in personal savings through October.

Since Banco Azteca took over that savings account business in October and began an intensive advertising campaign, customers have opened 160,000 accounts. The deposits total more than $45 million.

By next year, the bank plans to offer car loans and mortgages.

That should dramatically increase income for a company that has long relied on small loans for television sets and large appliances, said a Mexico City analyst who did not want to be identified.

However, it could take more than a year before Banco Azteca begins to reap the benefits of these bigger loans, the analyst said.